Because it's Friday

As Italy’s supreme court was considering its ruling on Silvio Berlusconi’s appeal, a lonely Carabiniere in full ceremonial regalia was left in charge of the court. But what he did not know was that the cameras installed to broadcast the verdict were rolling...

A 4pm summary

After a day of drama in Italy, the focus is moving sharply back to Spain, after the International Monetary Fund issued a bleak report on the outlook for the country's jobless -see 15.48

The IMF's warning of five years' of unemployment above 25% certainly puts into perspective official data - 10.13 - that joblessness is falling. In fact, taking into account Spain's big tourist industry, the seasonally-adjusted unemployment number is up.

It was a quiet day on European markets, as Italy and the rest of Europe puzzled over what the criminal conviction of Silvio Berlusconi means for the future of the coalition government.

The future for Enrico Letta's coalition looks fragile, but the investors don't seem too worried that the eurozone's 3rd largest economy will tip into crisis, not yet anyway.

"We definitely look at the political scenario while investing but we are not particularly concerned about the situation in Italy because we believe there are very few alternatives to the current government."

IMF rings alarm bell on Spain

Unemployment in Spain could be stuck above 25% for another 5 years, the International Monetary Fund has warned, as it calls for urgent action to get the eurozone's 4th largest economy moving again.

The IMF report notes that the increase in the unemployment rate to 27% is "unprecedented in Spain’s history" and disproportionately hitting temporary workers and the young - an incredible 57% young people were out of work at the start of the year.

For an official report, it has come out with some hard-hitting lines:

"The outlook is difficult and risks are high."

The IMF is urging the Spain's eurozone partners to get a move on with the banking union that will help Spain get out of the crisis, as well as measures to get lending started.

Europe should move faster to full banking union and the ECB implement further measures to reduce the much higher borrowing costs of Spain’s private sector.

US jobless rate hits 4-yr low (2)

Here is the Guardian's story on the US job data:

Economics editor Larry Elliott reports that the unemployment rate is the lowest since the global recession was at its most intense in the winter of 2008-09, but part of the drop was due to some Americans leaving the labour market after giving up hope of finding work.

James Knightly, economist at ING bank, said the markets had been hoping for a stronger report after upbeat US GDP data earlier in the week, which saw the economy grow by 1.7% in the second quarter.

He said it appeared to have "taken the wind out of the sails of those heavily backing a September start to quantitative easing tapering. Additionally, wages fell 0.1% on the month, the first fall since last October. This takes the year-on-year growth in wages down to 1.9% and is not indicative of a tight labour market."

As also might be expected the press has focused on the fact that the report reveals an €11bn funding gap for Greece between 2014 and 2016 (higher than that suggested by the eurozone). The report also calls for the eurozone to consider further debt relief for Greece. Neither of these revelations is brand new, with both having been included in the leaked version of the Troika report a few weeks ago....

The real question facing Greece and the eurozone (after the German elections) is whether to write down these ‘official creditors’ or not – known as ‘official sector involvement’ (OSI). There will likely be a push to extend the loans further and cut their interest rates but, as the funding gap highlights, there are immediate liquidity and solvency questions facing Greece.

They also note that the IMF is warning of further social unrest:

The risk of political instability remains acute, especially in light of high unemployment and on-going social hardship. Further ambitious fiscal adjustment is needed for public sector debt to decline steadily, which exacerbates the possibility of social stress and political resistance.

To bring tourists from the airport to the ski slopes in 40 minutes, for example, is a 48km road and railway that cost more than $8bn, one of the most expensive such transport links in the world.

“It would be cheaper to build the road with solid gold or caviar,” quipped Yulia Latynina, a Moscow talk radio host.

It is worth remembering that Russia has the G20 presidency, so in theory, is in charge of its crackdown on tax avoidance and "boosting sustainable, inclusive and balanced growth and jobs creation around the world".

Gambling on privatisation of UK banks

As one bailed-out UK bank get a new boss - see 8.59 on Royal Bank of Scotland - so the betting begins on when the UK government will cash in its shares in another and how long privatisation will take.

The Treasury is anxious to sell off the 39% stake that the taxpayer owns in Lloyds Bank. Yesterday the bank's boss António Horta-Osório, whose bonus is linked to the sale, challenged them to do just that.

Here are the odds bookmaker Paddy Power are offering:

When will the government sell 25% or more of its Lloyds Banking Group stake shares?

7/4 Q3 2013

4/1 Q4 2013

8/1 Q1 2014

8/1 Q2 2014

8/1 Q3 2014

8/1 Q4 2014

2/1 Not before 2015

When will the government have disposed of all of its Lloyds Banking Group Shares?

George Osborne - beaming like a Cheshire cat?

It has been a busy week for economic data in the UK. Here, two economists give their take:

Robert Wood at Berenberg

What a week; the UK is surging and George Osborne must be beaming like a Cheshire cat while on his holidays....So what does this avalanche of good news mean? The bottom line is that stimulus is working and confidence is returning, not just in the UK but in our major export markets too. While interest rates have been held at low levels for several years by the Bank of England, that had not fully fed through to households until recently. But following the BoE’s Funding for Lending scheme, and [European Central Bank boss Mario] Draghi’s all important words last summer, mortgage rates have tumbled and credit availability has improved. We expect the recovery to step onto firmer footing next year, as growth sets off a virtuous circle that results in rising real wages and a return of business investment.

Howard Archer at IHS Global Insight

More good news for the UK economy, with the construction sector seemingly increasingly shrugging off its long-term problems and now contributing to growth. This is significant as the construction sector has been a recent serious drag on UK economic activity despite its relatively small size.

With the purchasing managers reporting that both manufacturing and construction activity improved markedly further in July, it is looking ever more likely that the economy can achieve further decent growth in the third quarter after GDP growth doubled to 0.6% quarter-on-quarter in the second quarter from 0.3% quarter-on-quarter in the first. A robust July purchasing managers’ survey for the dominant services sector (out on Monday) would really help matters further.

In our August forecast, we are lifting our projection for UK GDP growth to 1.2% in 2013 and 1.9% in 2014.

But the respected National Institute for Economic and Social Research thinktank still thinks the government could do more to boost investment.

High spirits ahead of US jobs data

Optimism is fizzing in the US markets this morning, ahead of jobs data to be released in just under an hour.

The dollar has extended its gains against the yen, while the Dow Jones index has opened up 0.83%.

The non-farm payroll data will show how many new jobs were created in July. Economists - being economists - have come up with a range of predictions, from a below-average 180,000 new jobs to a confidence-boosting 210,000.

In the first half of 2013, the US has created an average of slightly more than 200,000 jobs a month. That’s the best stretch of job creation to start a year since 2005, but still not fast enough to rapidly reduce the nation’s persistently high unemployment. Still, the jobless rate, which stood 7.6% in June, could fall a notch to 7.5% in July, economists say.

Letta's Catch 22

If the Democratic Party votes to expel Berlusconi, it will put Italy's coalition government at risk;

If the Democratic Party votes to keep Berlusconi in, it will put itself at risk of internal strains and criticism from angry voters. It would also provide a boost to Beppe Grillo's anti-establishment rhetoric.

For the left it doesn’t mean anything because the left doesn’t exist... “If Italy were a normal country, it would obviously be a new chapter. But if Italy were a normal country this would never have happened because Berlusconi wasn’t electable.”

UK homebuilding surge

The Guardian's economics correspondent Phillip Inman reports that the whole construction sector has grown, but housebuilding led the way. The Treasury's controversial Help to Buy scheme, which kicked off earlier this year, is certainly at work. This has been cited by housebuilders as a key reason for a rise in demand for new homes, but many fear it could create another housing bubble.

As Phillip writes:

But there are still concerns in the industry that prices will race ahead of the industry's capacity to complete homes, driving up prices. Help to Buy, which underwrites the deposits of homebuyers, has proved especially controversial. Some economists have called it "crazy" and accused the government of attempting to create a house price feelgood factor ahead of the 2015 election.

War of the central bankers

The knives are out in the rarified world of central banking, as the US Federal Reserve hits out at the European Central Bank for creating a debt crisis that could have been avoided. A paper from the Richmond Fed accuses the ECB of policy "incoherence" and misunderstanding the crisis, the Daily Telegraph reports. The Fed want the Europeans to print more money - quantitative easing – to help restore the Eurozone economy to growth.

“The ECB lacks a coherent strategy for creating the monetary base required to sustain the money creation necessary for a growing economy,” said the paper, written in July by Robert Hetzel, the bank’s senior economist.

It called for direct action to buy “bundles” of small business loans, as well as “packages of government debt” across EMU states, including German Bunds. “The ECB will have to be clear that surplus countries will experience inflation above 2pc for extended periods of time,” and must be prepared to “explain to the German public” that this is desirable.

“Most important, the ECB needs to start by recognising that Europe’s problems are more than structural. It needs to stop using monetary policy as a lever for achieving structural changes and to end its contractionary policy.”

The ECB doesn't seem to think this is good advice. Yesterday the bank left rates unchanged at 0.5%, while ECB president Mario Draghi said there were signs of "gradual recovery" in 2014.

UK construction activity shoots up

The UK is building again: data from Markit shows that the construction sector expanded at its fastest since June 2010. Markit's purchasing managers' index has shot up to 57 for July, compared to 51 in June. Anything above 50 means growth.

Silvio Berlusconi - what happens now?

Even if he were ineligible, there is technically nothing that would stop Berlusconi leading the centre-right in an election campaign without running for office, and with parliamentary majorities laws can be changed. With ineligibility out of the way and a parliamentary majority, Berlusconi could, technically at least, even be PM.

But perhaps the key issue is the Senate vote that will decide whether Berlusconi must stand down immediately from political office, or whether he can hang on until the end of this political term. This vote in September or October "is bound to divide the coalition partners ferociously," Nardelli writes.

Italy in crisis

Good morning, and welcome to our rolling coverage of the latest events across the eurozone, the financial markets and the global economy.

It has taken 20 years of legal battles, but the law has finally caught up with Silvio Berlusconi. Italy’s Supreme Court ruling upheld Silvio Berlusconi’s conviction for tax fraud, plunges the eurozone’s third-largest economy back into political turmoil.

“His conviction is like the fall of the Berlin Wall in 1989,” said Beppe Grillo, leader of the anti-establishment 5-star movement and fierce Berlusconi critic.

The 76-year old billionaire is unlikely to serve any time in jail, but even under house arrest or doing community service, the former prime minister could still bring down the fragile coalition government led by Enrico Letta.

Since April, Letta has united his centre-left Democratic party with Berlusconi’s PdL in an uncomfortable coalition, but now its days seem numbered.

“Even as Letta appealed in a statement for "a climate of serenity", the huge pressure that the conviction will place on his government was starting to show.

Government under secretary Michaela Biancofiore, a member of the PdL, was reported to have said she would be resigning in protest at the verdict. Luca d'Alessandro, a PdL MP and secretary of the lower house of parliament's justice commission, said: "This country was famous for being the cradle of the law. Today it has become its tomb run by a corporation of grave diggers in gowns who have carried out the perfect crime. Honour and solidarity with Silvio Berlusconi, who is certainly more innocent and clean than those who unjustly convicted him."

But the verdict was thought likely to prompt equally strong reactions within Letta's centre-left Democratic Party (PD), many of whose members were already squeamish about joining forces with their political bête noire and may draw the line at continuing in a coalition with a convicted criminal.

Immediately after the verdict, Nichi Vendola, head of the opposition Left Ecology Freedom party, said it was "not possible" for the coalition to continue.

Here in the UK, Ross McEwan, a little known New Zealander, has been named boss of Royal Bank Scotland. McEwan joined the 81%-taxpayer owned bank a year ago and takes over from Stephen Hester, who was pushed out by the Treasury.

And we have US non-farm payroll data for July out later.

I’ll be tracking events in the eurozone and beyond throughout the day...